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Growth the old-fashioned way.

How many security management companies have reported record sales year after year but have never achieved the profits they forecast? When confronted with this anomaly, managers usually give an explanation something like, "We are investing in growth, and in time, profitability will take care of itself."

This is the very explanation one of our clients gave us (we're a consulting firm) when we asked it to explain the source of its stagnant profitability. However, when we looked behind the scenes, the real reason jumped at us - constant client turnover. The turnover was so obvious that we couldn't help but wonder if the firm's executives ever stopped to think about the impact lost business has on profitability.

Signing contracts with new clients only to lose existing ones has a devastating impact on a firm's bottom line. A gerbil on a wheel has a better chance of moving forward.

Whether they are in security management, contract food service, engineering, consulting, temporary personnel, or accounting service, industry managers are beginning to realize that retaining their core business and slowly adding to their client list is the key to profitable growth.

They've realized that once a firm reaches a sustainable size, protecting the current business takes precedence over growing the business. An established security management firm cannot sustain profitable growth without protecting its current clients and contracts. Protect first; grow second.

The dilemma for most firms involved in providing services to other businesses is that they agree with this philosophy but don't know how to implement it. Compounding the problem is that managers often cannot agree on who is responsible for keeping clients.

Sales organizations say it's the operators who lose the clients. Operating groups say they wouldn't have any problems retaining clients if the marketing department would sell the right kind of business. Many senior managers don't know who is right and are left grappling with the issue.

The approach offered here has been effective in solving this problem. The bad news, however, is that this approach doesn't offer a quick fix. If you are looking for an aspirin that will immediately solve all your client retention headaches, look elsewhere. This approach requires you to make client retention an integral part of your business strategy. The good news is that if you are willing to do it, with a little time, the payoff will be greater than you ever imagined possible.

This approach has been implemented successfully in a variety of business-to-business service companies and currently protects just under $1 billion in service management contracts.

The following key ingredients make up the approach we use to help business-to-business service firms protect their client and contract base:

Formally address client retention. Client retention must become part of the company's routine. Just like strategic planning and budgeting, the firm must set time aside to accomplish it. The client retention strategy must have a framework and its own set of rules. And all of the participants should be aware of the objectives and expectations of senior management before the process begins.

Spearhead the approach with a multi-department team. The only way to develop the critical mass necessary for prosperity is to protect and nurture the growth of the entire business. We encourage our clients to view retention as a never-ending process, beginning with the right clients under the right terms. Only a multidepartment team can deal with the complex issues and trade-offs necessary to protect the interests of the entire organization in such a scenario.

Once it is developed, make sure the plan is widely articulated and clearly understood throughout the firm. While a kick-off meeting is often appropriate, it must be clear to the organization that client retention is not a program but a way of life. Senior managers must communicate their expectations clearly. They should explain the potential rewards associated with following the firm's client retention efforts as well as the penalties for noncompliance.

Management shouldn't forget to let the firm's clients know about its formal approach to retention. Sharing the firm's intentions to keep them as clients forever often creates opportunities for communication that would not have presented themselves otherwise.

Understand that changing organizational culture takes time. The effort toward client retention must be given time to work. Our experience suggests that in a $100 million service company it takes approximately two years to see a significant improvement in retention.

During the first year, improvements are made, but people in the lower levels of the organization will be constantly testing the firm's resolve to see if it is serious about the effort. Only after all employees truly believe this is the way management intends to run the business will the organization begin to reap the huge rewards inherent in the effort.

Develop alternate measurements of effectiveness in the first years of the effort. Customer expectation surveys, operation reviews, and lost account analyses are needed to gauge the effort's effectiveness. Keeping track of the new business the firm gets from old clients as they change jobs and companies is an excellent example of the type of measurement necessary to judge the effectiveness of the program.

Financial results are often misleading during the first year or so. It may be necessary to weed out accounts that don't meet the criterion of "the right account under the right terms," and short-term profitability may suffer. Everyone involved must understand that the real measurements of success lie in the financial performance of the remaining clients and in the new clients the firm attracts under the right terms.

Accept the fact that client retention efforts are never complete. The firm's approach to retention must be responsive to changing environments. The documents associated with the effort have to be alive and useful to the managers responsible for implementing their guidelines.

Just as the firm constantly reviews its overall business strategy, it must also assess its client retention efforts. What constitutes the right client under the right terms is constantly changing.

Just because the approach is relatively easy to implement doesn't mean it won't have a significant impact on your bottom line. Over a five-year period, a $350 million business-to-business service organization went from losing $3 million worth of profit per year due to lost contracts to losing under $1 million by following the guidelines described here. More than $9 million in additional profits - without hiring any new people or authorizing any new capital investments - went straight to the bottom line.

In the '80s we learned that growth for growth's sake leads nowhere. It became clear why the only organism in nature that subscribes to such a philosophy is the cancer cell. It wouldn't take any business student long to list dozens of companies that became shooting stars only to fizzle in Chapter 11 within a few short years. Hopefully, we've learned a few lessons.

In the years ahead, more security companies will be comfortable with slower growth provided that it is sustainable and profitable. Hopefully, senior executives will be more willing to adopt a proven strategy for sustaining growth instead of the instant gratification that comes from being labeled a growth company by Wall Street.

The process described here can help you get started. It's a powerful tool to use on your journey to retaining clients and sustaining profitability and growth.

John W. Gamble is managing partner of The Tenac Group Inc., a national consulting firm that specializes in helping professional service firms retain clients. Gamble is also publisher of Service Sense, a quarterly newsletter for service professionals.
COPYRIGHT 1991 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Special Seminar Issue; client retention as a corporate growth strategy
Author:Gamble, John W.
Publication:Security Management
Date:Sep 1, 1991
Words:1248
Previous Article:Breaking bureaucratic bonds.
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